Barclays sets out defense on Libor fixing

July 03, 2012|Steve Slater | Reuters

LONDON (Reuters) - Barclays gave its first in-depth account of the interest rate fixing scandal that led to the exit of the British bank's chief executive Bob Diamond on Tuesday by releasing a document it will present to British lawmakers.

The bank said in the nine-page document published on its website on the eve of a parliamentary hearing that the events leading to a record breaking settlement with U.S. and British regulators "should never have taken place" and it deeply regretted that they had.

But Barclays detailed in its account to parliament how it thought British authorities had indicated they were happy for it to make a lower submission to the London interbank offered rate - known as Libor - when markets were in turmoil and confidence in banks fraying.

Libor is compiled as a market benchmark by averaging rates at which banks say they are able to borrow from each other in various currencies and maturities. By giving the compilers rates lower than those that the bank is actually able to borrow at, an institution may profit on certain contracts - or simply give the appearance that its lenders have more confidence than they do.

Barclays says it thought that it had been told in October 2008 by the Bank of England that it did not have to submit its Libor interest rates at the high level it had been doing in the wake of the collapse of Lehman Brothers, when most banks found borrowing costs rising. The Bank of England declined comment.

If a bank is seen to be having to borrow at higher rates, this casts doubt in markets about its creditworthiness.

The document published will form the backbone of testimony by Diamond, who resigned after intense political pressure, when he appears before parliament's Treasury Select Committee on Wednesday.

Barclays was last week fined a record $450 million for inaccurately submitting Libor rates from 2005 to 2009. Libor is based on rates submitted by a group of banks and is used around the world to price anything from derivative instruments to mortgages and student loans.

Some of the rigging was due to traders trying to fix the rate for their own gain. On other occasions the bank submitted a lower rate so it did not appear to have higher funding costs.

INTERNAL INVESTIGATION

Barclays said it had conducted an "exhaustive internal investigation" which had taken more than three years and cost more than 100 million pounds ($150 million). This had included reviewing 22 million documents from over 200 custodians, over 1 million audio files and more than 75 interviews.

But despite being praised for the level of cooperation with authorities including the Department of Justice and being the first to come to an agreement with regulators, the bank said it was "ironic that there has been such an intense focus on Barclays alone, caused by our being first to settle in the midst of an industry-wide, global investigation".

Barclays also maintains that many of the individual traders involved in attempts to manipulate the benchmark interest rate no longer worked at the firm and action had been taken against those who did remain.

The bank said Jerry del Missier, its chief operating officer who also resigned on Tuesday, had been investigated by Britain's Financial Services Authority (FSA) and this case had been closed with no action taken. It gave no details of the investigation.

Del Missier could not be reached for comment.

It warned lawmakers that Diamond's evidence to them about the Libor rigging affair would be constrained by legal limitations, notably because a process was under way "to assess what action may be necessary in respect of individuals involved". "There are also ongoing criminal investigations and legal proceedings," it added.

Because Diamond, who at the time was responsible for the business, was a witness to the events, his involvement in the investigation had been limited and he had been only received copies of the settlement documents on June 20.

OFFICIAL DISCUSSIONS

Referring to the period after the Lehman collapse in 2008, Barclays said that it believed banks contributing to the Libor survey were deliberating reporting lower borrowing costs than they were actually paying. It said in the document that it "did not understand why other banks were consistently posting lower submissions" than Barclays and that it "firmly believed that the other panel members were not, in fact, funding at a lower cost than Barclays".

It said it had been "disappointed that no effective action was taken, notwithstanding our having raised these issues with various authorities during the whole financial crisis period".

The bank also provided a timeline in which it outlined when it had raised its concerns with regulators, the Bank of England and U.S. Federal Reserve and the British Bankers' Association, which oversees the setting of Libor. The Libor figures submitted by banks are compiled by Thomson Reuters, parent company of Reuters, on behalf of the BBA.